Australia’s Alliance with the United States is our most important defence relationship and the foundation stone of our foreign policy and national security arrangements.

Four years ago, Australia signed a Treaty with the United States to create a framework for two-way trade in defence articles between “trusted communities” without the need for export licences.

On 14 March 2008, the Implementing Arrangement for the Treaty was signed and the Treaty was tabled in Parliament for consideration by the Joint Standing Committee on Treaties.

On 18 September 2008, the Committee recommended that the Australian Government implement the Treaty in domestic law.

On 29 September last year, the US Senate recommended ratification of the Treaty. This followed the passage of the Treaty’s implementing legislation through the US Congress on 28 September 2010.

This important step was the catalyst for the Australian Department of Defence to develop the necessary legislation.

This Bill is the result of that work, and is required before the Treaty can enter into force.

Treaty Benefits

Companies in Australia and the United States do a lot of work together to provide the equipment our Defence Forces need to do their job.

Cooperation in defence capability and technology is one of the most important elements of the Alliance.

About 50 per cent of Australia’s war-fighting assets are sourced from the United States, and we will replace or upgrade up to 85 per cent of our military equipment over the next 10 to 15 years.

Strengthening this area of our Alliance cooperation is therefore clearly in our national interest.

Currently, Australian companies that need access to defence items or technology from the United States must seek an export licence from the US Department of State in accordance with their International Traffic in Arms Regulations, or ITAR system.

Under the ITAR system, individual licences are required for each export application and can often be the subject of delays.

The Treaty removes the requirement for individual licences to be obtained for each export, and allows for the licence-free movement of eligible defence articles within the Approved Australian and US Communities.

For companies that are part of the Approved Community, this will save time and money.

For the Australian Defence Force the Treaty will also improve interoperability with US Armed Forces, by making it easier for both militaries to share common equipment and spares during exercises and operations.

Treaty Operation

The Australian Approved Community will consist of government agencies, companies that are approved as community members and their eligible employees.

Approval of an applicant for membership of the Australian Community will include consideration of a range of factors including:

· any convictions for export control offences;

· the level of foreign ownership or control; and

· prejudice to the security, defence or international relations of Australia.

The Bill sets out the framework in which the Australian Community will trade in Defence Articles with US Community members.

Membership of the Approved Community is voluntary and brings with it obligations.

Members of the Approved Community will have to comply with certain security and administrative requirements to protect the US technology they will have access to.

There are offences for Australian Community members who do not comply with the terms of their approval or operate outside the framework of the Approved Communities.

To ensure that Australian Community members comply with the Treaty obligations, the Bill will provide the Government with monitoring powers that will be exercised by Authorised Officers who have appropriate qualifications and relevant experience.

These measures will enhance the cooperation and interoperability of the Australian and the United States Defence Forces and defence industries.

It is expected that Australian Community members will also be better positioned to bid for US Government defence projects that will require access to US defence articles regulated by the ITAR system.

Industry Consultation

This Bill is the result of extensive consultation with the Australian Defence Industry.

This has been led by Mr Ken Peacock AM, an experienced former CEO of a major defence company.

The Treaty process must be easier to use and more commercially attractive than using the current ITAR system, otherwise it will not be a success.

That’s why the Government has consulted with Australian industry – large and small.

This consultation has been conducted over three major stages:

1. Stage 1 was meetings with industry in eight capital cities and regional centres in December last year.

2. Stage 2 was the establishment of the Defence Trade Cooperation Treaty Industry Advisory Panel in May this year.

The Panel includes experts from major Australian Defence companies, small-to-medium businesses and the Department of Defence and has provided important advice on the development of this Bill.

3. Stage 3 was the release of the exposure draft of the Bill for broader industry and community feedback in July this year.

This consultation process has been extremely valuable, and can I take this opportunity to thank Mr Peacock for his work and leadership of this process.

Industry raised a number of important issues during the consultation process. These included:

implementation details;

transition arrangements for moving from the current system to the new arrangements;

the costs and complexity involved in operating as part of the Approved Community;

the monitoring powers of Authorised Officers;

interpretation of brokering as an activity; and

the level of support to be provided to small to medium enterprises that want to become Approved Community Members.

This feedback has led to a number of important changes to the Bill and Explanatory Memorandum.

These include:

The definition of Australian person in Section 4 – which has been amended to clarify that it includes an individual who is a holder of a permanent visa under the Migration Act to provide further certainty for industry.

The Defense Trade Cooperation Munitions List in Section 36 – which has been amended to allow the Minister to list in one place those goods that are within the scope of the Treaty and those that are exempt from the scope of the Treaty. This will provide certainty and make it easier for industry to comply with the provisions of the Bill and Treaty obligations.

The powers of an Authorised Officer at Section 41 have also been amended to require an Authorised Officer to provide at least 24 hours notice of the intention to enter the premises of a member of the Australian Community. This change was made in response to concerns expressed by industry, to reflect the fact that the purpose of the Authorised Officers is to monitor and encourage industry compliance with Treaty obligations rather than simply to enforce those obligations.

The Explanatory Memorandum has also been amended to provide further guidance on the concept of “arranging” for the purposes of brokering trade in defence and strategic goods, technology and services.

All of these decisions were made based on feedback from the consultation process.

The Department of Defence will allocate resources including training, to assist individuals and companies to comply with the new legislation.

The Government has also made the decision not to charge industry for approvals, registrations or security clearances associated with the Bill.

Next Steps

Before the Treaty can become operational, there is a lot of work to do:

the Draft Regulations for this Bill will be released for industry consultation;

the United States will move forward with its implementing arrangements;

the Australian and US Governments will work together on a Pathfinder Program to test the Treaty framework; and

the Department of Defence will complete its transition planning, including introducing a new IT system to support the Treaty and new strengthened export controls.

Within two years of the Treaty coming into force the Department of Defence will also conduct a Post Implementation Review of the Treaty provisions of this Bill.

This review will be presented to the Joint Standing Committee on Treaties.

Regulations

The Draft Regulations will be released before the end of the year. They will be subject to further significant consultation with industry.

That will include consultation with the Defence Trade Cooperation Treaty Industry Advisory Panel chaired by Mr Ken Peacock.

The Regulations will include:

requirements to be satisfied by an employee or contractor for Australian Community membership;

key conditions of approval for Australian Community membership;

exceptions to Treaty offences;

record keeping requirements for Australian Community members;

compliance reporting requirements for Australian Community members;

process for being approved as an intermediate consignee;

exceptions to the offences for supply of technology or the provisions of defence services;

record keeping requirements for Permit Holders and Brokers;

identification cards for Authorised Officers; and

other administrative matters.

United States Implementation

On 29 September 2010, after lengthy and complex negotiations, the US Senate recommended ratification of the Treaty, following the passage of the Treaty’s implementing legislation through the US Congress on 28 September 2010.

Since that time, the US Administration has been working to meet the requirements of the Congressional Resolution of Ratification. As part of this, the necessary changes to the ITAR system are being proposed.

The United States will soon release for public comment a draft amendment to the ITAR system which will enable trade under the Treaty.

Once the US and Australian Governments have completed the necessary preparations and transition planning, the Defence Trade Cooperation Treaty will be brought into force.

Pathfinder Program

To ensure the Treaty is a success, the Australian and US Governments are also developing a Pathfinder Program to test the effectiveness of the Australian and United States systems being developed. This bilateral process will be administered by the Treaty Management Board.

The Board will select and evaluate test projects to identify what works well and what requires refinement before the Treaty enters into force.

These projects will be real examples that will be selected for their ability to cover the full range of Treaty scenarios, including support to current operations and cooperation on new major defence systems in Australia’s Defence Capability Plan.

Transition Planning

Work is also required to transition approved Australian Community members from the current export control system to the new system.

This includes the introduction of a new IT system to support the Treaty and strengthen export controls.

The current export control IT system has been in operation for almost 20 years.

A procurement process to select a partner to develop and implement a new system is underway, and a contract is expected to be signed early next year.

The new system will be set up and tested before the Treaty enters into force.

Strengthening Export Controls

The second purpose of the Bill is to enhance the existing legislative export controls measures.

Australia’s current export control of defence and strategic goods is regulated through legislation that includes the Customs Act 1901 and the Weapons of Mass Destruction (Prevention of Proliferation) Act 1995, as well as through the Charter of the United Nations Act 1945 and the Autonomous Sanctions Act 2011.

In order to strengthen Australia’s export controls, the Bill includes provisions covering:

· intangible transfer of technology relating to defence and strategic goods, such as transfer by electronic means;

· provision of services related to defence and strategic goods and technology, such as training and maintenance services; and

· brokering the supply of defence and strategic goods, technology and services.

Associated amendments to the Customs Act 1901 will cover the export of non-regulated goods that may contribute to a military end-use that may prejudice Australia’s security, defence or international relations.

Australia has played a prominent international role in developing, implementing and enforcing effective export controls on major arms and dual-use goods. These changes are in line with commitments Australia has made within the multilateral export control regimes; including, the Wassenaar Arrangement and the Australia Group.

These strengthened measures will bring Australia’s defence export controls in line with international best practice and are useful preparatory steps for Australian participation in negotiations on the United Nations Arms Trade Treaty.

Under this Bill, a permit will be required for any supply of technology relating to controlled defence and strategic goods, any provision of services related to those goods and technologies and any brokering of defence and strategic goods, technologies and related services. This builds upon the current licence and permit arrangements in existing export control legislation.

The Bill also establishes who will need to apply for a permit, when and how to apply for a permit as well as offences for situations when a permit is not obtained or when conditions under a permit are breached.

All these measures aim to ensure the responsible export of defence and strategic goods, technology and related services and prevent them from being transferred to destinations that may prejudice Australia’s security, defence or international relations. The measures will be implemented to minimise the impact on industry so that trade can be maintained while complying with the new requirements.

Conclusion

This is important legislation that will:

· strengthen our Alliance with the United States and the relationship between our defence industries;

· improve interoperability of the Australian and United States armed forces;

· help to deliver equipment to our troops faster and cheaper;

· provide opportunities for the Australian defence industry to win work in the US defence market; and

· enhance Australia’s defence export controls to bring them in line with international best practice.